Using Variance Analysis with Activity-Based Costing
If a company uses ABC (activity-based costing), like Jerry's Ice Cream, it cannot establish one standard variable overhead rate and standard quantity based on one cost driver. ABC companies must establish several standard variable overhead rates and quantities, each having its own cost driver. Regardless of whether a company uses the traditional costing approach or an activity-based costing approach, the process of performing variance analysis is consistent. Suppose Jerry's Ice Cream identified three significant activities. Let's see how ABC can be used with variance analysis!